Banks in Bahrain have been told to restrict lending on real estate to 30 per cent of their total lending book by the Central Bank of Bahrain (CBB).And the CBB is also imposing the amount financial institutions can lend on specific properties in a directive to all local banks.

In its revised consultation paper on real estate lending, the CBB stated: "For the past three years the CBB has been requiring licencees to report their exposure to the local real estate market and has also been monitoring the international exposure of locally incorporated licencees to real estate through regulatory returns.

"The CBB has also noted the inflation and volatility of real estate prices both in the GCC region and globally.

"As certain licencees have increased their exposure to real estate over the past few years, so the CBB has felt it appropriate to take measures to contain such exposures within prudent limits and to encourage diversification of risk in the asset base of licencees."

The directive states that there will be an aggregate credit concentration limit for real estate financing, including overseas operations, to individuals and corporations of 30 per cent of the licencees gross loan or financing portfolio.

It says a 70pc to 90pc loan to value limit will apply on commercial and real estate financing and residential mortgage financing respectively.

It states that banks or other institutions should carry out one independent valuation on lending on residential properties up to a value of BD250,000 ($663,278) and three independent valuations on properties over that price.

For commercial property financing there will be the need for one independent valuation on developments up to BD500,000 and three on properties above that.

The investment and financing limits in the directive are effective from January 1 while the loan to value limits came in on October 1.

"Licencees have until December to take measures to ensure compliance with the investment and financing limits and other requirements in this directive," the directive adds.

"As a result, each licencee should submit a report outlining the extent to which the licencee is compliant.

"If not the licencee must submit a plan to the CBB for full compliance no later than November 30."

SV Development